Consistent Reporting Under IRC 6222: When Your Return Must Match the Partnership Return

You think the partnership got your numbers wrong. So you report what you believe is correct on your own return and move on. Under the Bipartisan Budget Act (BBA) rules, that can be a costly shortcut.

IRC Section 6222 requires partners to report partnership items the same way the partnership did. If you do not, and you do not tell the IRS, the IRS can simply change your return and assess the difference as if it were an arithmetic mistake. No audit. No deficiency notice. No Tax Court petition first.

The rule

IRC 6222(a) says a partner shall, on the partner's return, treat any partnership-related item consistently with how the item was treated on the partnership return.

Treas. Reg. 301.6222-1(a) fills in the details:

• Consistency is required in all respects, including amount, timing, and characterization.
• "Partner's return" includes any return, statement, schedule, or list, and any amendment, filed with respect to any tax.
• The partnership return includes the original Form 1065, any administrative adjustment request (AAR), and any statements the partnership files with the IRS, including push-out statements under IRC 6226.
• If the partnership never filed a return, a partner's treatment of its items is per se inconsistent.

The rule applies to every partner, including a partner that is itself a partnership, and even if that partnership elected out of the BBA regime for its own year, under Treas. Reg. 301.6222-1(a)(2).

The trap: matching your K-1 is not always enough

Here is the part that catches people. Treas. Reg. 301.6222-1(a)(1) says a partner is not consistent if the partner's return matches the Schedule K-1 the partnership gave the partner but does not match what the partnership actually filed with the IRS.

Example 3 in that regulation describes a partnership whose filed K-1 shows a partner's loss as $5,000, while the K-1 handed to the partner shows $15,000. The partner reports $15,000. That partner is inconsistent.

There is a fix for that situation, discussed below. But it has a 60-day deadline. If you suspect your K-1 does not match the partnership's filing, see K-1 mismatch notices from the IRS.

What happens if you are inconsistent and say nothing

IRC 6222(b) says the resulting underpayment is assessed and collected as if it were due to a mathematical or clerical error on your return. Two consequences follow:

• No deficiency procedures. IRM 4.31.9.8.2.1 says deficiency procedures do not apply to the assessment, and these math error adjustments generally do not carry appeal or protest rights.
• No abatement request. Normally a taxpayer can ask the IRS to abate a math error assessment under IRC 6213(b)(2). IRC 6222(b) turns that off for consistency failures.

IRM 4.31.9.8.2.3 says the examiner notifies the partner with Letter 6202, Notice of Partner's Inconsistency. Penalties can follow too. IRC 6222(e) points to the accuracy-related and fraud penalties, and the IRS's Form 8082 instructions warn that the accuracy-related penalty under IRC 6662 and the fraud penalty under IRC 6663 may apply.

One limit: IRM 4.31.9.8.2 states that the BBA consistency rules do not apply to self-employment tax and net investment income tax issues, so those taxes cannot be assessed under these math error procedures.

How to disagree the right way: Form 8082

IRC 6222(c) turns off the math error treatment if the partner files a statement identifying the inconsistency. That statement is Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR). Key rules from Treas. Reg. 301.6222-1(c):

• Attach it to the return. The statement counts only if it is attached to the return on which the item is treated inconsistently. The Form 8082 instructions say to file it with the original return.
• Protection is item by item. Only the items you identify are protected. If you flag a deduction but not a capital gain, the IRS can still adjust the gain as a math error.
• The IRS can still disagree. The IRS may examine you in a partner-level proceeding and adjust the item to match the partnership return or to whatever it decides is correct. The IRS may also adjust other items on your return in that proceeding.
• Not after the audit starts. After a notice of administrative proceeding for the partnership year is mailed, you can no longer notify the IRS of inconsistent treatment for that year, except through the modification process.

The Form 8082 instructions add that the form is also used when a K-1 has not been received by your filing deadline.

The 60-day election when your K-1 was wrong

If you reported consistently with the K-1 the partnership gave you, and that K-1 differs from what the partnership filed, IRC 6222(c)(2) lets you elect to be treated as having given notice. Treas. Reg. 301.6222-1(d)(2) sets the requirements. The election must be:

1. Filed in writing with the IRS office named in the notice of inconsistency, no later than 60 days after the date of that notice.
2. Clearly identified as an election under IRC 6222(c)(2)(B).
3. Signed by the partner.
4. Accompanied by a copy of the K-1 or other statement you received and a copy of the IRS notice.

If it is not obvious from the K-1 that your reporting matches, the election must also explain how it matches in character, timing, and amount. A valid election means the math error assessment does not apply. IRM 4.31.9.8.2.3 notes that deficiency procedures apply instead.

Push-out statements are different

The Form 8082 safety valve does not cover everything. Under Treas. Reg. 301.6222-1(c)(2), notice does not protect a partner on items that are binding because of actions taken in a partnership proceeding, such as a push-out statement filed after an audit under IRC 6226. IRM 4.31.9.8.2.2 draws the line clearly: a partner may file Form 8082 for a push-out statement from an AAR, but if the partner's reporting is inconsistent with an audit push-out statement, the math error procedures apply regardless.

The same binding effect extends to tax attributes adjusted in the modification process. IRC 6225(c)(2)(E) treats a failure to follow those attribute adjustments as a consistency failure under IRC 6222.

For how those statements reach partners, see the push-out election under Section 6226 and the administrative adjustment request.

Partners that are partnerships

When the inconsistent partner is itself a partnership under the BBA, IRM 4.31.9.8.2.2 says the underpayment is determined under the imputed underpayment rules and may be assessed at that partnership's level. IRM 4.31.9.8.2.3 allows a partnership-partner to correct the inconsistency within the 60-day period by filing an AAR, or an amended return if it is not subject to the BBA, before assessment.

What to do

• Compare your K-1 to the partnership's filed return when anything looks off. Ask the partnership for a copy of what it filed.
• If the partnership agrees it made a mistake, the cleaner fix is usually for the partnership to correct its return through an AAR, so everyone reports the same numbers.
• If you still disagree, attach Form 8082 to your return and identify every inconsistent item.
• If you receive a notice of inconsistency, calendar the 60-day deadline the day it arrives.

For K-1s that arrive late or get corrected after you file, see what to do with an amended or late K-1. If you have received a notice of inconsistency or are deciding whether to file Form 8082, the Law Offices of Darrin T. Mish, P.A. in Tampa, Florida can review your situation. Call 813-229-7100.

Disagreeing with the partnership is allowed. Disagreeing quietly is what gets expensive.